Daiwa Posts Third Straight Profit on Trading, Underwriting

Net income was 7.4 billion yen ($92 million) for the three
months ended Sept. 30, compared with a loss of 19.4 billion yen
a year earlier, Tokyo-based Daiwa said in a statement today.
That beat the average estimate for 5.2 billion yen profit based
on a Bloomberg News survey of six analysts.

Daiwa won a role leading Japan Airlines Co. (9201)’s $8.3 billion
initial public offering last quarter, a deal that Chief
Financial Officer Nobuyuki Iwamoto predicted in August would
provide a “significant” boost to revenue. The securities firm
is scaling back operations abroad by cutting jobs and trimming
costs to stay profitable.

“JAL’s IPO and healthy bond trading boosted results in the
quarter,” Takehito Yamanaka, a Tokyo-based analyst at Credit
Suisse Group AG, said before the report. “Earnings levels are
still low but cost cutting is helping to keep a profit trend.”

Daiwa continued to lose money abroad last quarter, posting
a pretax loss of 2.1 billion yen from overseas operations,
narrowing from 7.1 billion yen a year earlier.

Cutting Jobs

The company led by Chief Executive Officer Takashi Hibino
said in September that it will eliminate as many as 50
derivatives jobs in Hong Kong and may shrink investment banking
and equity research in the city as part of an expanded cost-
cutting program. The reductions were in addition to 500
positions eliminated in Asia and Europe since October 2011.

Personnel expenses fell to 37.5 billion yen last quarter
from 41.8 billion yen a year earlier, the company said today.
The number of staff declined to 14,339 as of Sept. 30 from
14,675 three months earlier.

Shares of Daiwa climbed 2.8 percent to 330 yen at the close
of trading in Tokyo today before the earnings were released. The
Nikkei 225 Stock Average increased 1.2 percent. Daiwa has gained
38 percent this year.

Daiwa got 5.5 billion yen of revenue from the Japan
Airlines deal, the country’s largest IPO this year. The figure
includes underwriting fees and retail broking, Chief Financial
Officer Iwamoto said at a news briefing.

Beat Nomura

The firm was the top equity underwriter in Japan last
quarter after it arranged public offerings for seven companies
including Japan Airlines, data compiled by Bloomberg show. It
was the No. 3 bond underwriter for the quarter, and seventh in
mergers and acquisitions advisory.

Daiwa’s profit exceeded that of rival Nomura Holdings Inc.
Japan’s biggest brokerage this week posted second-quarter net
income of 2.8 billion yen as bond trading made up for declining
brokerage commissions. Nomura’s profit was the fourth in a row
and compared with a loss of 46.1 billion yen a year earlier.

Both companies have been embroiled in an insider-trading
scandal this year after regulators found that staff leaked
information on share sales they managed in 2010. In Daiwa’s case,
the actions were found to be isolated and it wasn’t punished.

The ramifications for Nomura have been greater, as its top
two executives resigned, it lost investment banking business and
the banking regulator told it to improve compliance. Nomura has
also been fined more than 500 million yen.

Japan’s government selected Daiwa and Goldman Sachs Group
Inc. in June to lead a global offering of shares it holds in
Japan Tobacco Inc. (2914), Asia’s largest cigarette maker by market
value, while Nomura missed out.